Can we replicate SIBs in France?

July 02, 2015

To date, about 30 Social Impact Bonds (SIBs) have been issued globally. They seek to address a variety of social issues: reducing recidivism of prisoners, fighting school dropout rates, placing children from troubled family backgrounds away from their families.

SIBs are strongly developed in Anglo-Saxon countries (UK, USA, Australia) but were introduced also more recently in Belgium, Germany, Portugal. Yet nothing has been in the works in France. Could this change in the near future?

The principle of this new financing tool, invented in England in 2010, is simple and seductive and enjoying a lot of success recently: a public actor asks investors to fund a socially innovative project, generating strong social impact and public sector savings.

Repayment (the amount invested plus interests remunerating the risk taken) is contingent upon specified social outcomes being achieved. For their part, the operator delivering the social project and investors have a strong interest in the achievement of social impact objectives, as it is a token of their performance. With such an alignment of interests between public institutions, social actors and investors, this system seems perfect to promote experimentation of innovative social services, and ultimately an evolution towards more performance in the delivery of social services.

And what are the French doing? Waiting patiently … Admittedly, the first results are only just being reported; the outcomes of the first SIB project have just been evaluated (recorded 8.4% decrease in recidivism in the first cohort of prisoners accompanied by the first SIB in Peterborough England for a downward target of at least 7.5%: at least, investors will get their money back !). Moreover, the English themselves underline the complexity of this financing tool, including engineering, assessment, management costs which can reach up to 10% of the amounts invested. The fact that the SIB is an English invention does not help French actors to get on board either, the two countries have radically different values on performance and social delivery…

But the main reason for the French wait-and-see attitude are the “pay for success” and mobilisation of private investors to (pre-) finance social action dimensions of the SIBs. Some non-profits in France are suspicious of these features. As they tackle difficult social issues, often instead of public authorities, they are reluctant to agree to results that may be unfeasible to achieve. They readily point out the adverse effects of “pay for success”: difficult cases could be abandoned to focus on those that provide quick results. Mobilising investors and remunerating them (with high remuneration if the social impact objectives are widely exceeded in the Anglo-Saxon example) to fund social services, could also translate into leaving social services at the mercy of finance and its excesses. Given these concerns, policymakers remain cautious too, wondering if is it worth potential conflicts with non-profits by pushing local or national engagement in the experimentation of a SIB.

Three factors, however, are likely to shift the debate in the coming months:

The state of public finance is in such a dire situation that it is likely that a General Council or a local authority will start paying close attention to this tool if savings and increased social impact can be proven and assessed.

The French social impact investor scene is clearly pushing for an adaptation of the SIB in France. The report of the French National Advisory Board on Social Impact Investment, published in September 2014, suggested it, and several banks, impact investors and specialists of impact assesment have shown their willingness to get involved.

Last but not least, some of the most dynamic non-profits are enthusiastic about SIBs: seeing the opportunity for innovation in the launch of a new social impact project, by “embedding” a public partner who is assured that the tool will create more savings than costs.

The powerful motor that will sooner or later lead to experimentation with the first SIB in France is started up by the strong need of social actors to continue experimenting and innovating despite current budgetary difficulties. If authorities can be convinced to play the role of the end-payer, France- even if starting a bit later- may just travel far.